FHA announces 'Back To Work' program

The Federal Housing Authority (FHA) recently announced it is shortening the mandatory waiting periods for homeowners who lost their jobs and homes during the recession to qualify for a FHA-insured mortgage.

The new deal is part of the FHA’s Back to Work – Extenuating Circumstances Program (PDF), which offers past or present mortgage holders a “second chance” if they’ve experienced a prolonged unemployment or financial hardship that has caused them to fall behind on their mortgages.

Instead of waiting the mandatory three years before qualifying for a new loan, buyers must prove, over the period of a year, that they are back on track financially. Potential borrowers must prove that they were responsible borrowers that suffered from a financial hardship beyond their control, and that they are responsible once again.

“FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage,” FHA Commissioner Carol Galante said in the mortgage letter.

In order to qualify for the program, homeowners must meet the following requirements:

• They must prove that the foreclosure or short sale was caused by what the FHA calls an “economic event” –  a loss of income or employment, or a combination of both, that is beyond the control of the borrower. The economic event must have caused an income reduction of 20 percent or more for at least six months.
• They must prove that they have “fully recovered” from the economic event that led to the foreclosure, short sale or bankruptcy. If a borrower underwent a foreclosure due to a job loss, the borrower must then prove that he or she is employed and able to afford loan payments once again. Beyond that, the borrower must also prove that his or her credit was satisfactory before the economic event, meaning that his or her credit report was free from late payments or other major derogatory credit issues, and that since the foreclosure, satisfactory credit has been re-established over the past 12 months.
• Borrowers must complete at least one hour of one-on-one housing counseling from a Department of Housing and Urban Development-approved counselor at least 30 days but no more than six months before submitting the application for an FHA loan.

After meeting the requirements, borrowers can qualify for an FHA loan, which allows them to put down just 3.5 percent on a mortgage.

Beyond helping homeowners who struggled during the recession, the program could also help the housing market in general by putting more buyers on the market.